When you’re getting your creative business off the ground, one of the first decisions you’ll need to make is how your business is set up legally. In the UK most people starting out choose either to be a sole trader or to set up a limited company. Both are legit ways to run a business – they just work in slightly different ways.

Below I’ll break down the key differences, pros and cons of each, and help you think about what might suit you and your business right now.

What is a sole trader?

A sole trader is the simplest way to run a business. You and your business are legally the same thing. You run everything, make all the decisions, and keep all the profits.

The practical bits

• You register as self-employed with HMRC so they know you’ll be paying tax.
• You keep all the profits after tax.
• You file a Self Assessment tax return each year.
• It’s easy to set up with minimal paperwork.

Pros

• Super simple to start and run.
• You have complete control.
• Records and tax are straightforward.
• Often cheap to run if income is modest.

Cons

• You are personally responsible for any business debts. This is called unlimited liability.
• If something goes wrong, even personal assets could be at risk.
• It can feel less professional to some clients.
• Tax planning options are more limited.

What is a limited company?

A limited company is a separate legal entity from you. That means the business has its own legal identity, and you own it as a director and shareholder.

The practical bits

• You register the company with Companies House before you start trading.
• The company has its own finances and pays corporation tax on profits.
• You can pay yourself a mix of salary and dividends.
• You file annual accounts and reports with Companies House.

Pros

• Your personal assets are generally protected from company debts – this is called limited liability.
• It can be more tax efficient once profits grow.
• Some clients and collaborators see limited companies as more established or professional.
• There’s more opportunity to plan how you take money out of the business.

Cons

• More admin and legal responsibilities – you must keep formal accounts and file returns.
• You have to register and pay a small fee to start.
• Running costs can be higher – many people use an accountant.
• The accounts you file become public information.

Tax in simple terms

As a sole trader, you pay income tax and National Insurance on your profits through your Self Assessment tax return.

As a limited company, the business pays corporation tax on its profits. You then pay tax on what you take as salary or dividends.

There’s no right or wrong choice here – just different ways the tax system treats your business structure.

So which one should you choose?

Here are a few simple ways to think about it:

Choose sole trader if:

• You’re just starting out and your income is modest.
• You want the simplest setup with minimal admin.
• You want to keep things informal and easy.

Choose limited company if:

• You expect your income to grow steadily.
• You want personal financial protection.
• You’re aiming to work with bigger clients or scale up.

Both options can work well for creatives – many freelancers start as sole traders and then move to a limited company when their business grows.

Final thoughts

Making this decision can feel daunting, but most creative businesses start simple and evolve over time. It’s perfectly reasonable to begin as a sole trader and switch to a limited company later as your confidence, clients and income grow.

If in doubt, talking to an accountant that understands creative freelancing can make the choice feel a lot clearer.